Blockchain: A New Disruptive Technology

Introduction – What is BlockChain?

Bitcoin is well known as the most successful cryptocurrency nowadays. It was proposed and implemented by a person (or a group) under the pseudonym of Satoshi Nakamoto in 2009. Blockchain is the core technology that supports Bitcoin. Basically, it is a decentralized database (or ledger) that allows digital transactions in a trustless environment. In this context, the word “trustless” means that there is no necessary a third party to reenforce trust.

Transactions stored in the ledger are validated, replicated and shared among the members of a network [1], this process is known as mining. Transactions are grouped and permanently stored in a chain of blocks since inception. Members of the network legitimize these transactions through a consensus mechanism. If something changes in one machine, then it changes everywhere. It is computationally infeasible to fake a block but it is very easy to detect the fake block. Therefore, a trusted third party is no longer needed.

Blockchain is not just a software or a tool. It is a new paradigm, some people say that this is the way the Internet was originally conceived: Decentralized. This cutting-edge technology has the potential to become the fifth disruptive computing paradigm after mainframes, PCs, the Internet, and mobile/social networking [2]. According to M. Swan [2], blockchain has potential as a worldwide, decentralized record for the registration, inventory and transfer of all assets-not just finances, but property and intangible assets such as votes, social networks, music industry, software, health, data and ideas.

Centralized Systems Drawbacks

Machines distributed on the internet have their own version of reality, i.e., their own database. Nowaday, to communicate and synchronize data we use API’s. In conventional centralized systems, a central authority (e.g., a central bank) validates every single transaction, which turns out to be expensive and time-consuming. This centralized architecture presents many drawbacks. A central authority is a single point of failure or attack.

“…for the first time we can lower uncertainty not just with political and economic institutions like banks, governments or corporations, but we can do it with technology alone.”

How the blockchain will radically transform the economy.

Bettina Warburg, Animal Ventures.

TED Talk, Dec 8, 2016.

Blockchainis basically a solution to these problems. It allows executing digital transactions in a decentralized fashion without a trusted intermediary. Blockchain is also known as a Distributed Ledger Technology (Figure 1). It can be defined as merge of databases and networks where every machine shares the same data. It implements a consensus mechanism to construct a single truth.

We define blockchain as a decentralized database that stores a registry of assets and transactions across a peer-to-peer network.

Key Characteristics of blockchain

According to Zhen et al., this technology has the following key characteristics [3]:

1. Decentralization: A transaction in the blockchain network can be conducted between any two peers without the intervention of any central entity. Thus, a blockchain network can reduce the operation cost of a central entity.

2. Persistency: Every node has a valid copy of the ledger. Nodes cannot delete or rollback transactions once they are part of the blockchain.

3. Immutability: Given the properties of the hash functions, it is not possible to alter a single bit within a block without changing the hash value of its header.

4. Anonymity: Users can preserve some level of anonymity by using their generated address (through the public key).

5. Auditability: Every transaction is validated and recorded in the ledger. Each of them includes a timestamp and information of previous records. This mechanism improves the traceability and the transparency of the data stored in the blockchain.